2010 SocialGaming Recap

Tim ChangHere’s a Seven-Bullet recap on 2010 for Social Gaming from Tim Chang, Partner at Norwest Venture Partners. Belated posting but it’s great perspective regardless. Tim will be joining me onstage at ad:tech SF on April 12, 2011 for our SocialGaming session. Show up sharp. 🙂

  1. The 1.0 stage of Social Gaming “Train has left the Station.” The explosive growth phase has come, conquered and gone in just about 24-months. To support his point, Chang pointed out:
    • Zynga’s market cap via private placement valuation exceeded that of EA in 2010
    • Traditional, console and PC-based game companies attempted pivots into the SocialGaming space with little success.  Same thing for Social App 1.0 startups that didn’t really have gaming in their DNA (started off as more viral apps, focused on rapid user acquisition)
    • Consolidation happened through studio and game acquisitions (Zynga buying up every sub-scale startup with a good team) as well as larger player acquisitions like Disney’s Playdom catch.  Especially interesting is non-US companies getting more aggressive on the global market: DeNA buying ngmoco, Tencent making many strategic investments in US gaming startups.  Everyone else opening up Silicon Valley-based scouting, BD, and investment offices
    • Two players, Playdom and ngmoco achieved $1.1 billion valuations and exited in barely 2 years
    • There’s still opportunity in social gaming for startups, but if you want to build something more than a small flip to Zynga, then it’s time to innovate Social Gaming 2.0 – e.g. midcore (ala Kabam), new genres (music, social activities as games), deeper gameplay and genres (social MMO RPG? RTS ala Riot Games?  Do some “gaming archaeology” and review the back catalog of great games and mechanics from the golden era of Apple II, C-64, Nintendo SNES for ideas and inspiration for social rewrites…after all, FarmVille was ripoff of FarmTown, which ripped off China’s HappyFarm, which was a social rewrite of the classic Harvest Moon)
  2. Mobile Social Gaming and Rise of Clone Wars—knock-offs abound and mobile becomes a key channel, first with iOS, and next Android
  3. Rise of In-App Purchases (allowing freemium for social gaming) and the Cost Per Install cross-promotion model (e.g. Tapjoy, ngmoco) on iPhone, which never had any of the free virality that Facebook offered.
  4. Death of Free Ride in Virality. Facebook shut off one of the key three legs of the social gaming 1.0 marketing stool (viral invites; cross-promotion; Facebook ads) which increased reliance on the other two legs of the stool which are cross-promotion (favoring those with a giant DAU base already, like Zynga), and Facebook ads (favoring those with huge cash warchests that can afford to spend millions per month on Facebook ads, e.g. Zynga)
  5. Gamification bandwagon. Tim helped to popularize the term and every startup B-Plan now has to have a head nod to the dynamic.  Unfortunately, very few understand the nuances of gamification beyond shallow application of badges and leaderboards, which is already leading to a backlash against the buzzword…
  6. Social Gaming goes global. Countries like Japan and Brazil became hotbeds of development and adoption, as new opportunities for monetization once US Facebook got too difficult to penetrate, and China market proved too fragmented, competitive (Tencent offering you a 10% rev split, or else they’d outright copy you), and small (ARPUs extremely low; top performing social game in China barely able to make $1M USD/month)
  7. Rise of cloud gaming? The “Netflix of Gaming” model didn’t quite pan out per all the hype…initial trials failed to show consumer willingness to convert to subscription…in fact lots of trial users tried out games, and simply went to Gamestop to buy used copies!!

You can catch Tim scribbling these seven points on his notepad and deliver his recap around the 2-minute mark in this clip from “The Future of Social Gaming” event hosted at Google on January 19, 2011.

Other panelists were Kai Huang – CEO & Founder of RedOctane (Guitar Hero–people pretty much bite down on their tongue, wince & thrash an imagined guitar at the mention of his name or in his presence, often uttering “deedledeeedledeerrrr” in homage to this dean); Mike Sego – CEO at Gaia Interactive, Kim-Mai Cutler – Inside Network, and Owais Farooqui – GM at King.com.

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